The value of a currency is vital for trade on an international level. If there were no exchange rates, we would not be able to trade internationally. The only way to trade for a foreign product would be barter, the trade of one product for another. This document will briefly discuss international trade with regards to currency, the large market of trading currencies, it s risks, common concerns, and possible ways to avoid them.
The Foreign Currency Trading market is one that fluctuates constantly, with some changes being slight and others enormous. These changes are depending on the value of both the currency one wishes to receive and the currency they are trading for it. Changes in foreign currency futures can be attributed to the government, supply and demand, interest rates, inflation, and consumer expectations. Currency trading for profit can be a way to make or lose a fortune, depending on how much one has researched into the market indicators, the risks that they don’t move the way you expected, and some luck that nothing unexpected happens in the global economy to shake the market from what you predicted.
Investing in Foreign Currency
One can make money in the Foreign exchange market by investing in a currency that they think will rise in value (appreciate) compared to the currency that they use in their daily life (i.e. An American invests into the Euro, thinking it will appreciate compared to the Dollar). For example, The People’s Republic of China is keeping its currency artificially low to keep itself globally competitive; Since 1994 it has fixed its exchange rate relative to the U.S. dollar at 8.28 Yuan = US$1. Because the value is steady relative to the dollar, there isn’t much speculation into the Chinese currency relative to the Dollar. However, there are complaints from other nations about this, and as the size of China as an economic power continues to grow; its currency will also eventually have to appreciate. U.S. Treasury Secretary Timothy Geithner points out “…the undervaluation of the [Chinese] yuan is the source of tensions in the world economy… if we want to avoid creating the conditions for a new crisis, China will need to accelerate the appreciation process.” So, one should keep an eye on the Yuan as a possibility for a large profit in terms of currency exchange rate.
There are those who help one speculate in the currency market and can make one make decisions with more assurance and knowledge behind their choices. A good checklist of things to go over and make sure you do is posted by Michael Duane Archer.
Tips for Currency Trading
- Observe before you dive headfirst into investing in forex (foreign exchange)
- Read reviews of brokers to find the good and bad
- Find a broker-dealer who fits your style and offers the tools you need
- Open demo accounts to compare the services offered, and discover which broker you prefer
The forex market is very risky and should not be entered into half-heartedly. It offers a great chance to make a considerable profit to those who are willing to put in the time. For additional information on the forex with regard to U.S. laws of trading.